FSA fines Prudential over AIA deal

UK regulator the Financial Services Authority (FSA) has fined UK insurer the Prudential Group £30 million for its actions in relation to its failed attempt to acquire AIA, the Asian subsidiary of AIG, in early 2010. The FSA has also censured Tidjane Thiam, Prudential’s group chief executive.

The regulator said the fines relate to Prudential’s failure to inform the FSA at the appropriate time that it was seeking to acquire AIA. It also said Prudential failed to deal with the FSA in an open and cooperative manner because it did not inform the FSA of the proposed acquisition until after it had been leaked to the media on 27 February 2010.

Prudential should have informed the FSA at the earliest opportunity to allow the FSA to decide whether to approve or reject the deal on regulatory grounds, it said. It failed to disclose the proposed transaction even when, at a meeting between the FSA and Prudential executives on 12 February 2010, the FSA asked detailed questions about Prudential’s strategy for growth in the Asian market and its plans for raising equity and debt capital.

The proposed transaction’s size and scale would have transformed the Group’s financial position, strategy and risk profile and involved a planned rights issue of £14.5bn, which would have been the biggest ever in the UK. The transaction had the potential to impact upon the stability and confidence of the financial system in the UK and abroad, the FSA said.

The FSA also said that it considered Prudential wrongly allowed its judgement to be overly influenced by its concern about the risk of leaks. This concern meant Prudential failed to give due weight to the importance of complying with its regulatory obligations, even when explicitly advised by its own advisers of the importance of keeping the regulator informed.

“The FSA expects to have an open and frank relationship with the firms it supervises and with listed companies,” said Tracey McDermott, FSA director of enforcement and financial crime. “It is essential that firms give due consideration to their regulatory obligations at all times. In particular, timely and proactive communication with the FSA is of fundamental importance to the functioning of the regulatory system and the integrity of the market.

“Prudential, led by Thiam as CEO, failed to give due consideration to its obligation to inform the FSA of this transaction, which would have had a huge impact on the group had it gone through. That was a serious error of judgement for which Prudential is paying the price. Firms should be in no doubt as to the importance of early communication with the regulator in respect of transformational transactions to avoid market and investor disruption.

“Thiam has also been censured in relation to his role in this matter. This case should send a clear message to all board members of their collective and individual responsibility for the decisions they make on behalf of their companies.”